Nation's CEOs certify earnings

DARRIN SCHLEGEL, Copyright 2002 Houston Chronicle

Published
5:30 am CDT, Thursday, August 15, 2002

The deadline for America's top bosses to swear by their financial statements came and went Wednesday with a handful of companies restating earnings and a couple of Houston firms vouching for some, but not all, of their numbers.

The day was marked by last-minute filings from a slew of executives at 695 firms required to attest to the accuracy of their most recent financials.

All 45 of the Houston-based companies required to meet the Securities and Exchange Commission order's deadline did so, but about 17 of them came in after noon on Wednesday.

More than 450 companies had complied with the order late Wednesday evening, but a time lag between the submission of statements and their posting on the SEC's Web site may explain the low numbers.

The unprecedented measure is intended to restore confidence in a market pressured by a wave of accounting scandals that started with Enron Corp.

On Wednesday at least, traders seemed encouraged by the number of executives complying with the order. A late-day rally sent the Dow Jones industrials up 260 points.

Perhaps most importantly, analysts say, the new rule holds a company's top executives directly responsible for its financial statements.

"This order makes it explicit -- as black and white as possible -- that the CEO is responsible," said Bala Dharan, a professor of accounting at Rice University. "This is to prevent people like Jeffrey Skilling from sitting in front of Congress saying `I didn't know what was going on.' "

About 250 more companies, whose chief executives and chief financial officers have to sign off on the letters, must comply with the order later this year. Those that submit false certifications risk being prosecuted and imprisoned.

New corporate governance laws will eventually extend the requirement to all publicly traded companies.

"I think it is the right thing that CEOs are being ordered to verify the information they are sending to shareholders," said Andrew Card, White House chief of staff. "If companies haven't been telling all of the truth all of the time, woe on those companies. But I think the vast majority of corporate leaders are telling the truth and that will be reflected in their statements."

Though the Dow seemed not to notice, at least one firm did have to file an earnings revision related to the SEC deadline.

The restatement, the company said, came after its new auditors reviewed its accounting for "complex" credit-card contracts.

Household wasn't the only company to revise its financials this week.

Interpublic Group of Cos., an advertising business, said it identified $68.5 million that had not been properly accounted for and is restating its earnings back to 1997 to reflect the overlooked expenses.

Meanwhile, Houston-based energy traders Enron Corp. and Dynegy said Wednesday they could not certify all of their required financial statements.

Stephen Cooper, Enron's chief executive, would not vouch for the company's financial reports before its bankruptcy filing in December.

The company "lacks the requisite knowledge to make any certification with respect" to financial statements before its bankruptcy, Cooper said in a filing.

Enron has said in previous SEC filings that its financial reports from 1997 through the first three quarters of 2001 can't be relied upon.

A restatement of those numbers is not feasible because the energy trader is under numerous investigations for its accounting practices, has limited resources and doesn't have have an independent auditor, the filing said.

Dynegy said it could not certify reports from 1999-2001, which are currently being re-examined by its independent auditor.

The company, which also faces federal investigations for its accounting practices, said it will restate its 2001 results.

The company did, however, vouch for its 2002 second-quarter results.

Other corporations under SEC scrutiny took a pass on the certifications.

Telecom giant WorldCom, which filed the largest bankruptcy in U.S. history after disclosing it inflated profits by almost $4 billion, said it would not certify its financial reports, as did Qwest Communications, which is under investigation for its accounting of $1.1 billion in revenue.

The SEC allows an automatic five-day extension to the deadline but is unclear about what happens to companies if they miss it.

A company has two choices for complying with the order: Certify the accuracy of its most recent annual and subsequent quarterly statements or explain why it can't, the SEC said.

William Lerach, the lead plaintiff's attorney in the Enron shareholder class-action lawsuit, argued Wednesday the certification requirement would do little to "smoke out" misleading accounting at the nation's public companies.

The language of the certification rule, he argued, is loaded with "weasel words that give a lot of room for lawyers."

Executives now will order their subordinates to provide them with assurances the company's financial information is correct, documents CEOs and CFOs can use as a legal defense for themselves.

And, "the real fraudsters aren't going to admit it," Lerach said. "They're going to cross their fingers, sign and pray for the best."

The statements and earnings reports are filed to the SEC on a rolling basis.

Those that use a calendar year for reporting results were required to meet the deadline by Wednesday.

Others that use fiscal-year reporting must comply on the first date they normally would submit their annual or quarterly reports. They face staggered deadlines from September through December.

In Houston, that includes Stewart & Stevenson Services and Sysco Corp.